When investing, it is fundamental for an investor to make a comparison of various investment opportunities and determine which investment promises a higher return while ensuring that risks are minimized. The analysis sometimes requires a thorough examination of elements associated with various types of investments. An investor should consider features such as interest rates, maturity period, risks, required rate of return, and upfront payments. Notably, investments differ in various aspects including minimum level of capital required, periodic payments, and income, among other features. For instance, an individual intending to invest in equities would find that dividends for stocks vary according to the market situation. However, the investor would also notice that apart from dividends, an individual would earn capital gains if he or she invested in equities. On the other hand, an individual considering an investment in bonds would find that bonds have a fixed maturity period that may determine Continue reading
Investment Analysis
Three Types of Portfolio Investments
Portfolio management is a process encompassing many activities of investment in assets and securities. It is a dynamic and flexible concept and involves regular and systematic analysis, judgment and action. The objective of this service is to help the unknown and investors with the expertise of professionals in investment portfolio management. It involves construction of a portfolio based upon the investor’s objectives, constraints, preferences for risk and returns and tax liability. The portfolio is reviewed and adjusted from time to time in tune with the market conditions. The evaluation of portfolio is to be done in terms of targets set for risk and returns. The changes in the portfolio are to be effected to meet the changing condition. Portfolio construction refers to the allocation of surplus funds in hand among a variety of financial assets open for investment. Portfolio theory concerns itself with the principles governing such allocation. The modern Continue reading
The Efficient Markets Hypothesis (EMH)
Market Efficiency The concept of market efficiency was first developed in the finance literature and its full form was first explained by Engene Fama. But now-a-days this concept is being used in other areas also. Market efficiency implies that prices reflect all available information, but it does not imply certain knowledge. Many pieces of information that are available and reflected in prices are fairly uncertain. Efficiency of markets does not eliminate that uncertainty and therefore does not imply perfect forecasting ability. By definition then there should not exist any unexplained opportunities for profit. “An ‘efficient’ market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation Continue reading
Fama and French Three Factor Model
Capital Asset Pricing Model (CAPM) is the backbone of modern portfolio theory. According to CAPM, the expected return on stock is a function of its relationship with the market portfolio defined by its beta. However, Eugene Fama and Kenneth French (1992) brought together two more factors and found that stock return is based on a combination of not just market beta but also firm size and value. They came up with a new model known as Three Factor Model as an alternative to CAPM. What is Fama and French Three Factor Model? Fama and French three factor model expands on the Capital Asset Pricing Model (CAPM) by adding size and value factors in addition to the market risk factor in CAPM. This model considers the fact that value and small cap stocks out-perform markets on a regular basis. Fama and French attempted to approach and measure equity returns in a Continue reading
PESTEL analysis of Indian capital market
POLITICAL: The capital market of India is very vulnerable. India has been politically instable in the past but it is a little politically stable now-a-days.the political instability of the country has a very strong impact on the capital market. The share market of India changes as the political changes took place. The BSE Index, SENSEX goes up and down with any kind of small and big political news, like, if there is news that a particular political party has withdrawn its support from the ruling party, and then the capital market will go down with a bang. The capital market of India is too weak and is based on speculations. The political stability of the country is very important for the stability and growth of capital market in India. The political imbalance or balance of the country is the major factor in deciding the capital market of India. The political Continue reading
Market-Neutral Alternative Funds: Advantages and Disadvantages
Advantages of Market-Neutral Alternative Funds One of the vital advantages characteristic of market-neutral alternative funds is the lowest correlation rate compared to other assets. Even though the return pattern would change for the organization over time, it would still have the opportunity to mitigate risks by combining different strategies based on market-neutral alternative funds. Investment options are not being seen as the essential way of creating a fortune in this case because investors do not associate themselves with fortunes. This is usually done to reduce the impact of the broader market on the organization and create a cushion for the company that would protect the lower levels of correlation from increasing drastically. Overall, market-neutral alternative funds are advantageous for correlation rates because they broaden the list of asset classes that are eligible for improvement. A decreased level of volatility is another benefit typical of market-neutral alternative funds. Investment lineups of Continue reading